Income Shifting

One of the more contentious items of legislation expected in the March Budget statement never materialised. The issue concerned the movement of income from one tax payer to another, the main objective being an overall reduction in tax payable. Typically it involved a husband and wife, or other connected parties for tax purposes, setting up a partnership or small company such that profits/dividends could be shared say equally. However the underlying commercial reality may be that one of the partners earns 90% of the profits. Income shifting legislation would allow the Revenue to redistribute the earnings of this sort of arrangement, such that taxable earnings were allocated on the basis of the underlying commercial activity, rather than the agreed share of profits or ownership of the business.

Although the legislation was not included in the March 2008 budget, this issue has not disappeared.

The Revenue has agreed to postpone implementation until 6 April 2009. During the next year there will be a period of consultation with interested parties, primarily the major accountancy and tax bodies, who will aim to inject some realism into the final shape of the legislation.

If you feel that you may be caught up in this ongoing debate we will be keeping you abreast of progress, or the lack of it, as the year progresses.